The Dutch service provider market has been consolidating for some time. Consolidation has begun in the hosting market, where a handful of large providers now dominate the market. More recently, managed service providers (MSP) are also consolidating. Wondering why, read our article on Why Market Consolidation.
But, how next? How is the market developing as a result? What are the next steps of these larger organisations, as well as the parties that remain independent? What is the “next step? And how do you, as a hoster or provider, adapt your strategy to take full advantage of this trend. We want to answer this in this article from our knowledge of the market and our experience.
Influence on the market
Once there are a limited number of similar providers in the same market, one can speak of an oligopoly (Wikipedia: Oligopoly). In an oligopoly, only a small number of parties offer a product or service. These parties have a strong influence on the market and the behavior of all providers. The offering is characterised by a high degree of standardisation, with distinction mainly in pricing and differentiation by brand experience or geography. A well-known oligopoly in Europe, for example, is the supermarket sector.
1.Hosting Provider Market
For the Dutch hosting provider market, you could say there is an oligopoly. A limited number of large providers: Team.Blue, Hostnet/One, MijnDomein, TWS and the German provider Strato own a large share of the market and are still increasing their position through acquisitions. Besides these big 5, we see a lot of smaller providers, but the big five conduct the Dutch hosting market. Within the provider market, however, we still see providers packaging services and products specifically making it difficult for customers to compare offerings. We then speak of a so-called heterogeneous oligopoly. The strategic challenge within a (heterogeneous) oligopoly is customer retention.
A good market strategy within a heterogeneous oligopoly is product differentiation. Want to learn more about product differentiation within the Service Provider market? Read our article on Henry Ford. With product differentiation, the service provider gives specific proprietary characteristics to the service. With the goal of getting specific customers excited about the service. This makes the customer feel more engaged and will remain loyal to the supplier. This has a positive effect on the provider’s market share.
Dutch Hosting Provider Market
This is also emerging in the Dutch hosting provider market. For example, through specialisation on a target audience (webagencies), or more value-added services for specific customers (website building software) or product specialisation (WordPress hosting or Game hosting). Most larger hosting companies also set up their labels that way. This helps customers recognise not only the service but also the company better. This creates specific customer loyalty.
Force21 sees that hosting providers are just getting started on this. The clouds of smoke from all the acquisitions are descending. And the hosting providers are all (re)positioning themselves and thus differentiating themselves. This is a slow process. Technology, culture and size do not help in rapidly changing these organisations. In addition, customer must be given time to feel “at home” with the new image. In doing so, a further amalgamation is not ruled out, but will run up against the limits of the legislation, which means that the Consumer & Market Authority (ACM) will also be watching for further consolidation in this market.
2. IT Service Provider Market.
The IT services market in the Netherlands is somewhat more complex in terms of product offerings compared to the hosting market. We use the following three-way division for this purpose:
- Workplace Provider, Managed Service Provider that provides services for and related to the employee’s workplace
- Cloud Provider, Managed Service Provider providing services for and in the data center. Focused on customer service
- Full Service Provider, parties that provides both
In addition to this tripartite division, we see 2 other major providers who also operate in the Managed Service market from another discipline. These are telecommunications provider and security provider. Not currently very active within the entire market, but potential entrants.
1. Workplace Provider
The workplace provider is characterised by 2 main features, namely job specific or geographically specific. These include the provider of workplaces for healthcare or the provider of workplaces in the head of North Holland. Since 2018-2019, we have seen strong consolidation especially among regional players. Where ‘regional heroes‘ seek each other out and move forward together. Investment companies too have now stepped in and are creating so-called ‘chains of pearls’.(MKB Fonds, Vincere). Many of the parties continue to operate under the “old” brand. In addition, we are currently seeing consolidations emerge under one label(hello, Solimas).
Because of the many providers in this market, there is perfect competition here (wikipedia: Complete Competition). In a mature market, competition will create price pressure. Now this market an sich is quite young and developing. Developments are occurring rapidly, including the Covid’19 pandemic.
With further market consolidation and technological developments, Force21 believes that standardisation of services is accelerating. A workplace is a workplace. This is going to have a big effect on the price. One way to escape this is portfolio broadening. The big market players have more clout to start expanding their portfolio at an accelerated pace with, for example, communications services, security services, technology adoption services and so on.
2. Cloud Provider
As discussed above, the offerings in the workplace market are still diverse and evolving. In addition, the client is still in the process of adopting an “online” workplace. However, in the data center market, this is no longer the case. The offer is fully accepted by the market and to a large extent already crystallised. The number of providers in this market is much smaller than the Workplace Providers. This is partly because Cloud Providers have always had a national profile. In addition, the start-up costs for a Cloud Provider are many mater higher. Given the smaller number of players, consolidation seems to be slower. But we also see some larger players emerging in this market(Sentia, Uniserver, Broad Horizon).
In this mature market with utter competition (wikipedia: Utter Competition), we also see price pressure emerging. This is reinforced by a number of new entrants to the market(Dataplace, Bytesnet, HeleCloud, Leaf.cloud) and the market is growing rapidly. In terms of technology, the market continues to evolve in speed and customer convenience. Container technology, Machine Learning, Edge Computing and the continued adoption and integration of Public Cloud. Plenty of things for providers to continue to stand out through technology.
With the rapid advance of new technology, portfolio development remains an important aspect for Cloud Providers. Portfolio Managers will remain busy phasing out old technologies and adopting new ones. The big opportunity in this market lies in disruption. Where a new technology makes all old technologies obsolete. Currently, it is not yet in sight. However, many parties are afraid of missing the boat and are now adopting many technologies. A key focus here is staying connected to your current customer base. Technological development is moving faster than adoption.
3. Full Service Provider
These providers offer both workplace and cloud services. Are mostly created through portfolio broadening. By looking at the customer’s IT challenges and developing products and services around them. These parties are mostly customer-oriented. The offer is built around the customer.
From a consolidation standpoint, this is more difficult. Less standardisation, more customer-specific solutions. But we also see consolidation emerging in the market. Good examples are the Odin Group or Interstellar. We also see some of the Workplace or cloud providers suddenly ending up in this market through acquisitions, such as Broad Horizon, for example.
Force21 expects consolidation in this market to remain difficult in the absence of new technological developments. If technology can provide standardization then this Hybrid form will soon come together with the 2 basic Providers. Chances are then that these three groups will come together again. The advantage of Full Serivce Providers lies in the strong customer focus with mostly highly differentiated offerings for specific users.
Force21 believes that this form of Provider consists precisely of the fact that standardization and differentiation have not yet taken mature forms.
Since the Dutch Hosting market is already quite advanced in an oligopoly, all eyes are on the IT Services provider market. In the Hosting market, Force21 does foresee further consolidation atthe European or Global level.
In the IT services market, companies will primarily capitalise on their volume, technology standardisation and operational efficiency. All three components will contribute to cost reductions and thus margin improvements, or competitive advantage. Especially in the area of product rationalisation, there is a very big battle to be struck. As a result, supply will begin to become comparable, with which distinction can eventually be achieved only on brand differentiation and/or price. And also the IT Services market will become an oligopoly.
Force21 believes that innovation and adoption strength will be decisive. Are IT Service Providers evolving into their customers’ “Digital foundation” partners, or will they remain technology providers? If IT Service Providers can emerge as Digital Foundation Partners, they will be at the forefront of the further digitisation of the entire society. In doing so, they will also accumulate some of the credits tied to the value creation that digitalsation brings.
Want to know what might be the best strategy for your business? Make a no-obligation appointment with Thijs van Hofwegen or myself, Tjarko Kwee, to get advice on this.